The Pakistani Rupee (PKR) has been one of the most volatile currencies in South Asia during the past decade. In 2025, while the currency shows indications of stabilization following years of sharp decrease, the wounds of depreciation continue to damage Pakistan’s economy, trade, and the lives of ordinary citizens.
The rupee’s depreciation is not only a number on a forex chart — it reflects profound structural imbalances, foreign pressures, and decades of policy inconsistency. This essay discusses the reasons underlying the rupee’s fall, its economic consequences, and what may be done to bring sustainable stability to Pakistan’s currency.
Overview: The Rupee’s Journey in 2025
At the start of 2025, the Pakistani Rupee was trading around PKR 290–295 per US dollar, a minor rebound compared to the 2023 peak when it briefly touched PKR 320 per USD. The State Bank of Pakistan (SBP), bolstered by IMF assistance and increased remittances, managed to stabilize the currency, at least briefly.
However, this stability remains precarious. Pakistan still confronts massive external debts, poor exports, and significant import dependency – characteristics that keep the currency under persistent pressure.
Despite these problems, 2025 marks a turning moment where Pakistan’s authorities are beginning to grasp that currency stability requires more than short-term controls; it demands structural changes and sustainable economic growth.
Historical Background: How Did the Rupee Get Here?
The Pakistani Rupee’s depreciation has been a long-term trend. Over the previous decade, the rupee has lost about 70% of its value, mostly owing to:
- Chronic trade deficits (importing significantly more than exporting).
- Falling foreign reserves and limited dollar inflows.
- Political instability that discourages investment.
- Dependence on external borrowing to meet financial obligations. Every political and economic crisis — from the 2018 currency depreciation to the 2022 IMF stalemate — has pushed the rupee down. By 2024, the currency had achieved historic lows, causing the government to curb imports, boost interest rates, and seek further IMF backing. These actions have partly stabilized the exchange rate in 2025 but have not yet addressed the root problems.
Trade Imbalance
Pakistan consistently imports more than it exports. In 2025, exports stay around $33 billion, while imports reach $55 billion. This mismatch produces increased demand for dollars, draining reserves and depreciating the currency.
External Debt and IMF Obligations
With external debt reaching $125 billion, Pakistan spends billions of dollars each year on loan repayments. Meeting these payments typically entails borrowing more dollars, keeping the currency under pressure.
Political Instability and Investor Confidence
Frequent government changes and policy reversals generate uncertainty, discouraging both domestic and foreign investors. When confidence drops, investors withdraw their capital out of the country, raising dollar demand.
Inflation and Monetary Policy
High inflation – roughly 18–20% in 2025 — decreases the purchasing power of the rupee. The State Bank’s high interest rate (22%) tries to contain inflation but also inhibits economic activity, limiting export growth.
Dependence on Imports
Pakistan relies significantly on imported oil, machinery, and raw materials. Global oil price hikes directly damage the trade deficit and weaken the currency.
Smuggling and Speculation
Informal currency exchanges and smuggling across borders — especially with Afghanistan and Iran — have further harmed rupee stability. In 2023–24, crackdowns by law enforcement helped reduce these activities, but issues remain.
Economic Consequences of Rupee Depreciation
The depreciation of the rupee has significant impacts on every sector of the economy, from government debt to consumer prices.
Higher Inflation and Cost of Living
A weak rupee makes imports costlier. Prices of essentials such as food, fuel, and medicine climb substantially. In 2025, this is one of the key reasons why inflation remains at 18%, despite government efforts.
Rising Debt Burden
When the rupee declines, the cost of repaying foreign debts increases. For example, if the rupee loses 10% of its value, Pakistan’s external debt immediately expands by the same margin in local currency terms.
Increased Production Costs
Industries that rely on imported raw materials incur greater input costs. This hurts exports, since Pakistani goods become more expensive compared to regional competitors like Bangladesh or Vietnam.
Reduced Purchasing Power
Ordinary individuals face the impact of rupee depreciation through increasing costs and stagnating earnings. The middle class, in particular, struggles to maintain living standards as their investments lose value.
Uncertain Business Environment
Currency instability makes it harder for firms to plan or price things. Many small and medium firms (SMEs) curtail production or lay off staff to deal with growing costs.
Government and SBP Measures in 2025
Recognizing the significance of the crisis, the State Bank of Pakistan (SBP) and the government have adopted numerous measures in 2025 to stabilize the currency:
- Tight Monetary Policy: The SBP has maintained a high interest rate of 22%, discouraging unnecessary borrowing and keeping inflation in check.
- IMF Extended Fund Facility (EFF): Pakistan entered a new $7 billion IMF program concentrating on fiscal discipline, subsidy reduction, and export promotion.
- Crackdown on Illegal Dollar Trading: Law enforcement authorities have acted against currency smugglers and Hawala/Hundi operators to restrict the black-market demand for dollars.
- Import Rationalization: Non-essential imports are prohibited to lessen pressure on foreign reserves.
- Encouraging Remittances: The government has provided incentives for abroad Pakistanis to remit money through legitimate banking channels, helping bolster reserves.
- CPEC and Foreign Investment: Renewed Chinese investment under CPEC Phase II intends to bring in much-needed foreign cash. These steps have helped the rupee stabilize somewhat in the short term, but sustainable recovery requires major structural reforms.
Long-Term Solutions to Strengthen the Rupee
While short-term actions help soothe the market, Pakistan requires a long-term strategy to ensure the currency remains stable and robust.Long-Term Solutions to Strengthen the Rupee
Boost Exports
Diversifying export items — especially in IT, agribusiness, and pharmaceuticals — is vital. Relying mainly on textiles limits foreign exchange revenues.
Promote Import Substitution
Encouraging local manufacturing of commodities like machinery, electronics, and fertilizers can minimize the import bill and promote domestic industry.
Enhance Tax Revenue
Pakistan’s tax-to-GDP ratio (below 10%) is among the lowest in the region. Expanding the tax base will lessen dependence on foreign borrowing.
Encourage Foreign Direct Investment (FDI
Stable government, clear regulations, and investor protection legislation may attract foreign investment – bringing in revenue and creating jobs.
Focus on Renewable Energy
Developing solar and wind energy can lower the costly import of oil and gas, reducing pressure on the currency.
Political and Policy Stability
Currency markets thrive on consistency. Long-term policy stability and cross-party consensus on economic changes are vital for investor confidence.
Outlook for 2026: Can the Rupee Recover?
Analysts anticipate that if Pakistan continues on current reform path, the rupee could strengthen somewhat to roughly PKR 280 per USD by late 2026. However, this depends on sustaining IMF discipline, expanding exports, and avoiding political unrest
If global oil prices decrease and remittances remain robust, Pakistan could experience meaningful relief in its external position. But without continued reforms and productivity development, any recovery may be short-lived.
Conclusion
The rupee’s depreciation shows broader economic vulnerabilities rather than merely currency mismanagement. Pakistan’s significant import dependency, political instability, and debt obligations have left the rupee fragile for years.
While 2025 has provided a degree of stability, real development will come only through structural reforms, fiscal responsibility, and investment in local production. The goal is not only to stabilize the rupee temporarily, but to establish an economy robust enough that its currency represents actual value and confidence.
